After 150 years, age of oil entering an efficiency phase

Published 5:30 am, Sunday, August 30, 2009

A natural gas rig stands in Mifflin Township, Pa., illustrating the fuel’s rise in the state where the first commercially successful oil well was drilled.

A natural gas rig stands in Mifflin Township, Pa., illustrating the fuel’s rise in the state where the first commercially successful oil well was drilled.

Photo: MIKE MERGEN, BLOOMBERG NEWS

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Drake's Well, at the Drake Well Museum, is near Titusville, Pa.

Drake's Well, at the Drake Well Museum, is near Titusville, Pa.

Photo: RANDY KRAFT, Allentown Morning Call

After 150 years, age of oil entering an efficiency phase

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Almost from its beginnings 150 years ago this month, the oil industry has been a high-risk international business driven by speculators and technological innovation.

Edwin Drake and the New Haven, Conn., investors who funded the United States' first commercial oil drilling operation in rural Pennsylvania aren't so different from today's venture capitalists betting big on a new, unproven technology, author and energy industry analyst Daniel Yergin says.

Drake was labeled “mad” and came within days of tapping out his funds as he adapted equipment that previously had been used only for water wells in search of a lamp fuel cheaper than whale oil.

Within just a few years, the forest of wells that followed was feeding an international market, says Susan Beates, the curator at the Drake Well Museum in Titusville, Pa.

Despite the similarities with 1859, though, the oil industry in 2009 faces challenges that make past barriers seem like mere bumps in comparison — surging energy demand from the developing world, volatile price swings that spawn both boon and bust, and demands to limit the environmental damage of fossil fuels.

“But the age of oil is not over,” Yergin says. “Over the next two to three decades, on a global basis we'll see oil demand increase, but there will be a tremendous drive for us to use it much more efficiently.”

That drive, and particularly the role that natural gas may play in it, could help keep another generation of workers in Houston's office towers and refineries employed.

“In some ways Houston isn't the oil capital as much as it is the natural gas capital of the world, at least for the last half century,” says Joseph Pratt, a historyprofessor at the University of Houston who specializes in the energy industry.

Amory Lovins, president and chief scientist of the Rocky Mountain Institute, predicts the U.S. could just about eliminate its need for oil by 2040 by expanding on a number of energy efficiency efforts that have sprung up since an Arab oil embargo sparked the energy crisis of the early 1970s.

These include reducing oil's use as a transportation fuel through lighter, fuel-efficient vehicles, shifting to a combination of natural gas and nonagricultural biofuels, improving building efficiency standards and other measures.

“It's not going to happen because of concern for the climate but because it's profitable. Any company that saves energy knows it saves money,” Lovins says. “The whaling industry of the 1800s didn't die out because it ran out of whales. It ran out of customers. Whales were actually saved by profit maximizers of the oil industry.”

The energy industry certainly doesn't widely embrace Lovins' timeline for oil's decline, but Pratt says the business knows a thing or two about saving energy. Refineries and drilling platforms use huge amounts, so company engineers are constantly find ways to do more with less.

“I'm a believer in that collective engineering impulse to find better ways to get oil and natural gas and maybe better ways to use it,” Pratt says. “When it comes to better and cleaner ways to use it, we've just touched the surface on our abilities.”

The likelihood of government mandates to reduce greenhouse gas emissions will increase the importance of natural gas, which was more nuisance than resource for much of the industry's history because of difficulties in transporting it. Its combustion emits far less carbon dioxide, and it can be adapted to run all manner of equipment.

Less than a decade ago there were concerns about the adequacy of domestic natural gas sources, Yergin says, leading to anxiety among power companies and large industrial users. But advances in drilling technology that are letting companies get gas from plentiful shale formations have changed that outlook.

Less than a decade ago there were concerns about the adequacy of domestic natural gas sources, Yergin says, leading to anxiety among power companies and large industrial users. But advances in drilling technology that are letting companies get gas from plentiful shale formations have changed that outlook.

By some estimates shale gas formations can meet U.S. demands for many decades to come. A report released earlier this year says that including shale, gas reserves estimates are up 35 percent from the year before.

“There's a lot more confidence about using gas,” Yergin says.

Pratt says Houston is particularly well suited for a future that relies more heavily on natural gas because it's such a big part of the city's past.

The abundance of natural gas near the city helped fuel the growth of industries along the Houston Ship Channel after World War II. An extensive national pipeline network emanated from the area, bringing the fuel to both coasts.

The companies that build the pipelines historically have been in Houston, as have the researchers who improve on the technologies to extract, process and move the fuel. The intellectual and financial resources that reside in the energy companies that stretch from downtown westward to Katy are unrivaled by any other city, Pratt says.

“To say oil will be around for another 150 years is an exaggeration,” Pratt says. “But I'd say that for the second half of the petroleum age, natural gas will be the predominant fuel.”